A PermaBear Turns Bullish: 150% Gains Coming
By Dr. Steve Sjuggerud
Tuesday, March 24, 2009
When would you rather buy the Nasdaq? On March 23, 2000, at 4,940... or yesterday, at 1,512?
Back in early 2000, one well-known professional investor turned incredibly bearish...
He's one of the few pros who invested during the last great bull market in the late 1960s. He'd just gotten out of school and he quickly made enough money in the stock market to pay off his debts, buy a BMW, and even a nice house.
Then he lost it all... Come 2000, he didn't forget the lesson. He called the top in the markets with more conviction than any other professional investor.
I have a ton of respect for him. He willingly gave up millions in fees from customers to stick with his belief that stocks were heading for a fall. Customers who didn't want to believe him simply took their money and gave it to managers who promised bigger gains.
But this investor turned out to be exactly right...
In early 2000, Jeremy Grantham predicted stocks would lose 3.9% per year annualized for the next 10 years.
Back then, he said:
I challenge anyone to tell me with a straight face that I'm using seriously bearish assumptions – because I'm most definitely not. My assumption of a 17.5 P/E is above average. My assumption of a 6% profit margin is way above average. And 4% sales growth is so high – so optimistic – that it's loony. And yet it still only gets me to a total return of a negative 1.9%...
If I assume a 2% sales growth instead, I arrive at an estimated return of a negative 3.9% per year. That's starts to get more like it – closer to reality.
He was predicting the worst 10-year period in history for U.S. stocks, including the Great Depression. We're nine years into his prediction. And he got it exactly right.
So what's Grantham saying today?
Today, Grantham is predicting the opposite of what he said in 2000. When the Nasdaq was at 5,000 he said sell. Now, he's saying buy.
He predicts that, over the next seven years, many different types of stocks will return just under 11% a year. (In particular, he says high-quality U.S. stocks, international small-cap stocks, and emerging-market stocks will make these returns.)
Grantham expects you could do even better – 13% a year (or more) over seven years in these areas – with active portfolio management. In plain English, you could turn $100,000 into nearly $250,000 in seven years.
Investors are worried about buying in now... They're worried about the banks and about unemployment. In Grantham's most recent article (available at www.gmo.com), he talked about this same scenario back in the Depression:
Long before all the banks had failed or unemployment had peaked, the S&P rallied 105% in six months...
The market does not turn when it sees a light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before.
The man who called the 2000
peak with more conviction than any other professional investor is now calling the bottom...
The man who willingly gave up millions in potential fees from customers to stick to his principles is now finally optimistic on stocks.
We should listen.
Good investing,
Steve |
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HOW TO TELL IF INFLATION IS BECOMING A PROBLEM
Our gold stock "rebound trade" is up 60% since our December write-up... and the inflation hounds are raising their heads in suspicion...
As we mentioned a few months ago, gold stocks rise when investors bid up "real assets" that retain value when governments abuse the paper-money system... when the currencies folks use to plan financial decisions are debased and distorted. That's why we call the gold stock ETF an inflation hound...
You can think of the market as an old man sitting on his porch with a few grizzled hound dogs at his side. This old-timer has seen a lot. Back in the '70s, he saw his neighborhood get robbed blind by a high-tax, high-spend government and its silent accomplice, inflation. That accomplice is silent, but he sure does stink. And when he gets close to the property, the hounds start barking. They can smell him from a hundred yards.
So... how long will it take for the government's crazy back-to-the-'70s plan of massive social spending, costly wars, and immoral money-printing to cause significant inflation? We're guessing it will be at least a year or two. But we'll defer to old man market and his hounds on this one. One of his hounds just reached a new six-month high... and a move above $50 means it smells inflation...
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Pacific Investment Management Co. [Pimco] which runs the world's biggest bond fund, joined investors Warren Buffett and Marc Faber in saying inflation will quicken, sounding a warning for Treasury investors.
U.S. government and Federal Reserve efforts to snap the recession will increase costs for goods and services as soon as 2010, Pimco said in a report on its Web site by Chris Caltagirone and Bob Greer. Commodity producers are also delaying projects, which may limit supply and lead to higher prices when global growth resumes, according to Pimco.
"Inflation will rise," Pimco said. Treasury securities that give investors protection against higher prices in the economy are "attractive now."
– Bloomberg
"It's alright, folks! We're from the government, and we're here to help! Everyone just go back to the way you were, spending and borrowing, borrowing and spending... everything is going to be juuust fiiiine..."
That's the message "Helicopter" Ben Bernanke sent the world [last week] when the Fed went all in, buying $300 billion of long-term Treasuries and spending another $750 billion on agency mortgage-backed securities (for a total around $1.25 trillion), plus another $100 billion on agency debt (for a total of $200 billion). The first purchases are planned for late next week, and will focus on two- to 10-year Treasuries, but will include the entire yield curve.
Printing money and buying Treasuries and agency debt will push down longer-term rates individuals pay on mortgages and other important loans. American Banker reports this morning mortgage rates are the lowest they've been since WWII. This will help the U.S. government shove more bad mortgages down everyone's throat. And you know how that turns out...
– Dan Ferris
S&A Digest
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Monday, March 23, 2009
The Safest Way to Make 50 Times Your Money in Gold Stocks
Saturday, March 21, 2009
A Dramatic Turn for the Better... Time to Buy Stocks
Friday, March 20, 2009
The Next Big Disaster Will Be Insurance Stocks
Thursday, March 19, 2009
This Major World Currency Is About to Plummet
Wednesday, March 18, 2009 |
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